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In the context of the capital asset pricing model,...

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In the context of the capital asset pricing model, the systematic measure of risk is captured by _________. A. unique risk B. beta C. standard deviation of returns D. variance of returns If enough investors decide to purchase stocks they are likely to drive up stock prices thereby causing _____________ and ___________. A. expected returns to fall; risk premiums to fall B. expected returns to rise; risk premiums to fall C. expected returns to rise; risk premiums to rise D. expected returns to fall; risk premiums to rise Investors require a risk premium as compensation for bearing ______________. A. unsystematic risk B. alpha risk C. residual risk D. systematic risk The possibility of arbitrage arises when ____________. A. there is no consensus among investors regarding the future direction of the market, and thus trades are made arbitrarily B. mispricing among securities creates opportunities for riskless profits C. two identically risky securities carry the same expected returns D. investors do not diversify Which of the following variables do Fama and French claim do a better job explaining stock returns than beta? I. Book to market ratio II. Unexpected change in industrial production III. Firm size A. I only B. I and II only C. I and III only D. I, II and III Beta is a measure of ______________. A. total risk B. relative systematic risk C. relative non-systematic risk D. relative business risk According to the CAPM, investors are compensated for all but which of the following? A. Expected inflation B. Systematic risk C. Time value of money D. Residual risk The most significant conceptual difference between the arbitrage pricing theory (APT) and the capital asset pricing model (CAPM) is that the CAPM _____________. A. places less emphasis on market risk B. recognizes multiple unsystematic risk factors C. recognizes only one systematic risk factor D. recognizes multiple systematic risk factors Standard deviation of portfolio returns is a measure of ___________. A. total risk B. relative systematic risk C. relative non-systematic risk D. relative business risk One of the main problems with the arbitrage pricing theory is __________. A. its use of several factors instead of a single market index to explain the risk-return relationship B. the introduction of non-systematic risk as a key factor in the risk-return relationship C. that the APT requires an even larger number of unrealistic assumptions than the CAPM D. the model fails to identify the key macroeconomic variables in the risk-return relationship The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected return on SDA Corp. common stock is 16%. The beta of SDA Corp. common stock is 1.25. Within the context of the capital asset pricing model, _________. A. SDA Corp. stock is underpriced B. SDA Corp. stock is fairly priced C. SDA Corp. stock's alpha is -0.75% D. SDA Corp. stock alpha is 0.75% Two investment advisors are comparing performance. Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2. If the T-bill rate was 5% and the market return during the period was 13%, which advisor was the better stock picker? A. Advisor A was better because he generated a larger alpha B. Advisor B was better because he generated a larger alpha C. Advisor A was better because he generated a higher return D. Advisor B was better because he achieved a good return with a lower beta The expected return on the market is the risk free rate plus the _____________. A. diversified returns B. equilibrium risk premium C. historical market return D. unsystematic return

 

Paper#7022 | Written in 18-Jul-2015

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